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Abstract

This study examines the role of financial development in enhancing the impacts of remittances on economic growth in Nigeria using annual time series data from 1981 to 2018. Two models were constructed and each model has three specifications to capture the three measures of financial development. The first model is without interactive terms while the second model include the interactive terms. The key variables are financial development, remittances and growth rate of GDP. Government spending and gross fixed capital formation are the control variables. The three measures of financial development include the ratio of broad money (M2) to GDP; the ratio of private sector credit to GDP; and the ratio of market capitalization to GDP.

ARDL Bound test approach is the estimation technique. The results of the Bound test show that the variables are cointegrated in all specifications. In the model without the interactive term, the impacts of remittances on economic growth depend on the measure of financial development both in the long run and short run. However, when remittances are interacted with financial development, both remittances and all the indicators of financial development have positive and statistically significant effects on economic growth. Furthermore, the coefficients of all the interactive terms are positive and significant. This supports the existence of complementarity between financial development and remittances. Therefore, the government of Nigeria should intensify efforts in creating enabling environment for well-developed financial market.